MILAN — Zegna’s higher positioning is paying off.
Its single brand in the pure luxury leisurewear range is attracting existing and new customers, with “no resistance to the higher prices,” said chairman and chief executive officer Gildo Zegna, who also believes the company will benefit from a strong return to suiting and made to order — also in the more casual range.
The U.S. and the United Arab Emirates have been responding well to the rebranding of the storied Italian menswear brand, Europe has been rebounding despite the war in Ukraine, and the uncertainties in Greater China related to the new COVID-19 clusters are not dampening the spirit of the executive and his management team, who are not revising the company’s guidance for the year.
On Thursday, the Ermenegildo Zegna Group held a conference call with analysts to discuss year-end results for 2021, revealed the evening before, which saw revenues increase 27 percent to 1.3 billion euros. In the 12 months ended Dec. 31, Zegna sales rose 23 percent to 1 billion euros and Thom Browne revenues climbed 47 percent to 264 million euros.
Related Galleries
“Thom Browne’s creativity was elevated to the level of art,” said Zegna during the call, noting that synergies with the brand, controlled since 2018, are “hugely beneficial” for the group. Last year, Zegna acquired an additional 5 percent stake in the American designer’s brand.
Chief financial and operating officer Gianluca Tagliabue said group profitability was “one year ahead of the plan.”
Adjusted operating profit amounted to 149 million euros, up more than seven times from the 20 million euros recorded in 2020, thanks to higher full-price sales in the mix and higher efficiencies.
Adjusted EBIT for the Zegna segment was 111 million euros, or 10.7 percent on revenues, compared to 7.8 percent in 2019, driven by better sales mix, cost efficiencies and positive operating leverage.
For the Thom Browne segment, adjusted EBIT was 38 million euros, more than doubled from 16 million euros in 2019 due to a lower pace of cost growth in the 2019-2021 period, compared to the 64 percent increase in sales in the same period. Compared to 2020, adjusted EBIT in 2021 grew 31 percent from 29 million euros.
“Revenues were higher than expected, and with our vertically integrated structure, we are absorbing part of our costs,” said Tagliabue. “We were prudent with our plan on margins, but we’ve proven ourselves with a solid and promising 2021.”
Zegna also has a cash surplus of 145 million euros, lifted by 139 million euros in proceeds from the business combination with Investindustrial Acquisition Corp., a special purpose acquisition corporation, sponsored by investment subsidiaries of Investindustrial VII LP which led to Zegna’s public listing on Wall Street last December. This compares with a net debt of 7 million euros at the end of December 2020.
The company posted losses of 128 million euros for the year, but that was due to non-cash accounting items, including a 205-million euro adjustment related to the SPAC merger.
Zegna has said before that the listing could lead to potential M&As and, responding to a question about future possibilities, the executive said he was “surely considering several opportunities, but the first priority is focusing on what is going on around the world and on organic growth. If something serious comes along I would look into it.” However, with a small laugh, he admitted it would probably have to be “small fishes rather than large ones. The Italian know-how has to be preserved, small enterprises are suffering, with the energy costs and logistics, and if we can give a hand we will do it.”
This is in line with the executive’s longtime strategy, and in fact he reiterated his pride in the company’s vertical supply chain, which is working “at full speed” and noted that it is also hiring Ukrainian refugees “to help out” as the war continues to ravage that country.
Asked about Greater China and the risks related to the pandemic, Zegna said the region is “key,” accounting for 46 percent of sales. “Surely, we are closely monitoring the development of the crisis. The start of the year was good, but the new lockdowns are disrupting trends, with some stores closed and traffic significantly hit, we must be realistic, but I wish to express a positive point of view. China is a resilient market, it tends to quickly come back to operate normally, and our guidance gives room to navigate.”
He also cited strong growth potential in Greater China for Thom Browne.
The American brand saw continued strong growth across every channel and geography, and in both menswear and womenswear and accessories, growing its client base. CEO Rodrigo Bazan also highlighted the direct-to-consumer growth of the brand, which is taking further advantage of the Zegna platform.
Thom Browne last year expanded its network of stores, reaching 52 units up from 28 in 2019. Bazan noted a strong response to full price and highlighted the brand’s digital traction.
Zegna trumpeted a “very, very strong trend in the U.S.,” which has responded well to the new Zegna brand positioning. He defined the performance in the U.S. as “stellar, one we haven’t seen for years,” both at retail and wholesale. While many partnerships have evolved into concessions, Zegna was pleased to note that wholesale inventories had been lowered, “finally seeing good traction with new [merchandise] and good sell-through.”
He said “Boston started the journey well, we’ve seen a good rebound in New York and Los Angeles, and good numbers in Canada, too.”
Latin America “has never been as healthy as in the past six months,” he said, singling out a strong performance in Mexico and Brazil.
The trend in the U.K. was “extremely brilliant in the first two months,” and the numbers in Dubai and the United Arab Emirates were “unbelievable, beyond good.”
Capital expenditure for 2021 totaled 48 million euros, up from 39 million euros in 2020, reflecting mainly investments in the store network, the IT and production areas. In 2022, Tagliabue said the company has earmarked 80 million euros, of which two thirds would be channeled into retail and rebranding, IT and digital.
Zegna said revisiting the store network, which should be completed by the end of the year, has resonated well with customers, attracted by the new products, “the impact, the lighting, the shelves, the colors, how everything was put together, it’s been helping the sales immensely.”
Returning to the workplace and a new wedding season have triggered a comeback of tailoring and made-to-measure to the levels of 2019, he continued. The brand’s sport jacket, knitwear and the XXX sneaker have been best-selling items among shoppers wishing to refresh their wardrobe.
There are also more carryovers and more editing in the collection, leading to lower obsolescence and more focused retail spaces, added Tagliabue.